Private equity group Terra Firma is thought to be close to plugging a £105m cash gap and helping it to keep control of EMI, the music company that it bought with £3bn of borrowed money in 2007.
Headed by British financier Guy Hands, Terra Firma has until Friday to give an undertaking to Citigroup that it can make good a breach in the terms of its debt agreements. Otherwise the bank could seize control of EMI, whose artists include Gorillaz, Hot Chip and Corinne Bailey Rae.
While Terra Firma intends to inject the new equity needed to keep control of EMI for another year, it is unclear whether the money will come entirely from existing investors in Terra Firma funds or from another source of capital.
EMI breached the terms on £3.2bn of debt held by Citigroup at the end of March, capping a torrid period for the business after it announced a loss of £1.8bn last year. An attempt to avoid the covenant breach by licensing its music catalogue in the United States foundered after talks with rivals Universal Music Group and Sony fell through.
Hands originally intended to raise £360m to tide EMI over until 2015, but was forced to scale back the plan because of the tight timetable and investor opposition. But he has lined up outside investors who are prepared to plough money into the group later in the year in a move that would give him more time to turn the company around.
Citigroup and Hands are at loggerheads, with Terra Firma taking the bank to court in the US, claiming it was tricked into offering too much for EMI because Citigroup failed to inform it that other potential buyers had pulled out. Citigroup is contesting the allegations.
Hands is confident that investors will be encouraged by a new business plan put together by Charles Allen, executive chairman of EMI's recorded music division. Allen is looking at the possibility of asset sales, with some analysts speculating he could offload its Japanese business for £200m. More job losses at EMI are on the cards, with analysts estimating Allen could cut another £100m from the firm's cost base.
Observers believe that once Allen has stabilised the situation, he will sell the company to Warner, which has been interested in EMI for the last decade.
